Here are a few questions we have received over the years.

Q:HOW DO I KNOW IF I’M READY TO BUY A HOME?

A:You can find out by asking yourself some questions:

Do I have a steady source of income (usually a job)? Have I been employed on a regular basis for the last 2-3 years? Is my current income reliable?
Do I have a good record of paying my bills?
Do I have few outstanding long-term debts, like car payments?
Do I have money saved for a down payment?
Do I have the ability to pay a mortgage every month, plus additional costs?

If you can answer “yes” to these questions, you are probably ready to buy your own home.

Q:HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY?

A:The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:

two years have passed since a bankruptcy has been discharged
all judgments have been paid
any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
three years have passed since a foreclosure or a deed-in-lieu has been resolved

Q:HOW LARGE OF A DOWN PAYMENT DO I NEED?

A:There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and – possibly -repairs and decorating.

Q:HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?

A:Pre-qualification is an informal way to see how much you maybe able to borrow. You can be ‘pre-qualified’ over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval is a lender’s actual commitment to lend to you. It involves assembling the financial records (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

Q:WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?

A:If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 1% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.

Q:WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH?

A:Fixed Rate Mortgages: Payments remain the same for the life of the loan
Types

Q:CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?

A:Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

Q:HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY?

A:The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:

two years have passed since a bankruptcy has been discharged
all judgments have been paid
any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
three years have passed since a foreclosure or a deed-in-lieu has been resolved

Q:WHAT IS EARNEST MONEY? HOW MUCH SHOULD I SET ASIDE?

A:Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.

Q:ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?

A:Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

Q:WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY LOAN?

A:The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.

Q:WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?

A:The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner’s insurance, and mortgage insurance (if applicable).

Q:WHAT FACTORS AFFECT MORTGAGE PAYMENTS?

A:The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

Q:WHAT IS DEBT-TO-INCOME RATIO (DTI)

A:Your debt-to-income ratio, or DTI, expresses in percentage form how much of your gross monthly income is spent on servicing liabilities such as auto loans, credit cards, mortgage payments (including homeowners insurance, property taxes, mortgage insurance, and HOA fees), rent, credit lines, etc. Living expenses such as cable, gas, electricity, groceries, etc., are not considered part of your DTI. If your DTI is high, it means you are highly leveraged and have tight finances, which, naturally, is considered risky from a lending standpoint. On the other hand, if your DTI is low, the lender knows you have plenty of room in your monthly budget to absorb unexpected expenses and still make your mortgage payments.

Q:WHAT ARE DISCOUNT POINTS?

A:Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases With each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

Q:WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE?

A:Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner’s insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner’s insurance, make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.

Q:WHAT IS THE FHA?

A:Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.

Q:WHAT IS PMI?

A:PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI’s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

Q:DO I REALLY NEED HOMEOWNER’S INSURANCE?

A:Yes. A paid homeowner’s insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low.

Q:WHAT IS MORTGAGE INSURANCE?

A:Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%.

Q:HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE?

A:Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

Q:DO I NEED MORTGAGE INSURANCE? HOW DO I GET IT?

A:You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.

Q:WHAT IS A 203(k) LOAN?

A:This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller’s existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:

The home must be at least one year old.
The cost of rehabilitation must be at least $5,000, but the total property value – including the cost of repairs – must fall within the FHA maximum mortgage limit.
The 203(k) loan must follow many of the 203(b) eligibility requirements.
Talk to your lender about specific improvement, energy efficiency, and structural guidelines.

Q:WHAT MAKES UP CLOSING COST?

A:There may be closing cost customary or unique to a certain locality, but closing cost are usually made up of the following:

Q:WHAT IS THE BEST WAY TO COMPARE LOAN TERMS BETWEEN LENDERS?

A:First, devise a checklist for the information from each lending institution. You should include the company’s name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.

Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.

Q:WHAT STEPS NEED TO BE TAKEN TO SECURE A LOAN?

A:The first step in securing a loan is to complete a loan application. To do so, you’ll need the following information.

Pay stubs for the past 2-3 months
W-2 forms for the past 2 years
Information on long-term debts
Recent bank statements
tax returns for the past 2 years
Proof of any other income
Address and description of the property you wish to buy
Sales contract

During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase.

Q:WHAT RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?

A:To ensure you won’t fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:

Be sure to read and understand everything before you sign.
Refuse to sign any blank documents.
Do not buy property for someone else.
Do not overstate your income.
Do not overstate how long you have been employed.
Do not overstate your assets.
Accurately report your debts.
Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application.
Be truthful about your credit problems, past and present.
Be honest about your intention to occupy the house
Do not provide false supporting documents.

Q:WHAT HAPPENS AFTER I’VE APPLIED FOR MY LOAN?

A:It usually takes a lender between 2-6 weeks to complete the evaluation of your application. It’s not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. And after closing, you’ll be able to move into your new home.

Q:WHO DETERMINES MORTGAGE RATES?

A:Mortgage interest rates are determined by the pricing of Mortgage Backed Securities or Mortgage Bonds. The media often implies mortgage rates are based off of the 10-year Treasury Note, which is incorrect.

While the 10-year Treasury Note has been known to rend in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.

Q:HOW OFTEN DO MORTGAGE RATES CHANGE?

A:Mortgage rates may change throughout the day, however they only change on days when the Bond markets are trading securities since mortgage rates are based on Mortgage Bond prices.

Q:WHAT CAUSES MORTGAGES RATES TO CHANGE?

A:Mortgage bonds are largely affected by various market forces that influence the changing demand for bonds within the market. Some of the key economic factors that have the greatest impact are unemployment percentages, inflationary fears, economic strength and overall movement of money in and out of the markets.

Q:DO DIFFERENT PROGRAMS HAVE DIFFERENT INTEREST RATES?

A:Conventional, FHA, and VA loans can all carry different rates on a 30 year fixed mortgage. FHA and VA loans are insured by the Federal Government in the event of defaults. Conventional mortgages are insured by private mortgage insurance companies, if insurance is required.

Typically, FHA and VA loans carry a lower rate because the investor views the government backing as less of a risk. While rates are usually different for each program, it may be more important to compare the monthly and overall cost during the life of the loan to determine which program best suits your needs.

Q:WHO DETERMINES MORTGAGE RATES?

A:Mortgage interest rates are determined by the pricing of Mortgage Backed Securities or Mortgage Bonds. The media often implies mortgage rates are based off of the 10-year Treasury Note, which is incorrect.

While the 10-year Treasury Note has been known to rend in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.

Q:HOW OFTEN DO MORTGAGE RATES CHANGE?

A:Mortgage rates may change throughout the day, however they only change on days when the Bond markets are trading securities since mortgage rates are based on Mortgage Bond prices.

Q:WHAT CAUSES MORTGAGE RATES TO CHANGE?

A:Mortgage bonds are largely affected by various market forces that influence the changing demand for bonds within the market. Some of the key economic factors that have the greatest impact are unemployment percentages, inflationary fears, economic strength and overall movement of money in and out of the markets.

Q:DO DIFFERENT PROGRAMS HAVE DIFFERENT INTEREST RATES?

A:Conventional, FHA, and VA loans can all carry different rates on a 30 year fixed mortgage. FHA and VA loans are insured by the Federal Government in the event of defaults. Conventional mortgages are insured by private mortgage insurance companies, if insurance is required.

Typically, FHA and VA loans carry a lower rate because the investor views the government backing as less of a risk. While rates are usually different for each program, it may be more important to compare the monthly and overall cost during the life of the loan to determine which program best suits your needs.

Holly Stirling was friendly, knowledgeable, and very helpful. Always easy to get in contact with. I knew she had my best interest in mind.

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Attain Housing (formerly KITH) helps homeless and at-risk families with children in Washington State to become stable and self-sufficient. First, Attain Housing stabilizes families in 32 Attain Housing apartments and in units owned by others. Then, Attain Housing assists the families with services, including case management, which helps them make lasting life changes, leading to permanent housing. When you help Attain Housing, you help homeless families transform their lives, thereby strengthening our community.

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